The governor’s energy policy is simple to explain, but has been harder to sell—at least to legislators this past session. The policy is to bring cheaper electricity into Maine and lower costs to Maine residents. What’s not to like about that? That depends on who you ask.
This year, in addition to bringing more inexpensive natural gas into the Maine market, the administration’s other major energy initiative is to bring electricity into western Maine from Hydro Quebec and connect it to the Maine grid. Proponents say this strategy would not only supply us with inexpensive electricity, but it would be come from a renewable source. Blue-green power, in other words. But there’s the rub.
Like roughly half the states in the country, Maine has adopted a set of “renewable portfolio standards” (RPS), which provide economic incentives to companies to encourage an increased amount of electricity be generated from renewable sources. The way the RPS incentives work is that companies producing renewable power can sell “renewable energy credits” (RECs) to utilities that are not using enough green power themselves, to provide additional revenue to renewable energy providers and lower the cost of the power they sell. But to qualify for these incentives under Maine law, hydropower facilities must be smaller than 100-megawatts, since the goal of this policy adopted in 1999 was to provide an economic benefit to Maine’s hydroelectric producers, not to an international energy company like Hydro Quebec.
But during the past session, the governor proposed removing the 100-megawatt cap in order to open the door for Hydro Quebec to sell its electricity into the Maine market. One of the questions that emerged was if the cap were removed, would Hydro Quebec actually sell at a lower rate into the Maine market or just pocket the extra REC cash. A compromise emerged during the waning days of the legislative session to authorize the Maine’s Public Utilities Commission (PUC) to conduct a competitive bidding process to insure regulators understood the deal for consumers. But the governor opposed the compromise as too cumbersome and the bill died at the end of session.
If the governor likes renewable power from Hydro Quebec, wind power producers wonder why they seem to have fallen out of favor with the current administration. During a recent weekly radio address, the governor said that wind power technologies are not “viable and plentiful sources of cost effective energy today.” The governor and his staff have evidently concluded that windy form of green energy comes at too high a cost to Maine ratepayers.
So what does power generated by wind turbines cost to us as ratepayers? Simple question; complicated answer.
Let’s look at what we know about electric power sales rates from a couple of recent publicly reported agreements. First, we know that a year ago First Wind announced an agreement with New Brunswick Power to sell the energy from their Mars Hill project for four years. New Brunswick Power had won the opportunity to provide service to all customer classes in Northern Maine by offering a reduction in electricity prices of 10 to 21 percent, and they cited the use of locally-produced wind power as one reason for the decrease in Northern Maine consumers’ energy bills. We also know that in 2009 the Maine Public Utilities Commission approved a 20-year contract between First Wind’s Rollins Project and Central Maine Power and Bangor-Hydro-Electric Company, which specified that the energy would be sold at a discount from the actual market price with a price of between 5.5 cents per kwh and 11.1 cents per kwh.
To understand what determines these fluctuating prices requires a brief detour into the wholesale market for electricity. Because no one has figured out how to store electricity, all the electricity we use is produced the moment we turn on a light and goes off line when we turn things off. The incredibly complicated task of matching electricity supply and demand is the responsibility of New England’s grid operator known as ISO-New England, which conducts hourly wholesale electricity auctions to balance the load. ISO-New England always buys the cheapest electricity available. Some comes from electricity generators that provide base power while other producers are constantly spinning up or down to meet demand according to ISO’s instructions. The power aggregators take risks on the wholesale market, while others provide base power through long-term contracts.
To give but one example: in April 20l l the average Maine real time energy price was 4.2 cents per kwh because April is generally a low-demand month. But on April 13th at 1:00 in the afternoon, the real time electricity price topped out at 31.3 cents per kwh when a lot of us must have turned on the power. It is the wholesalers selling on the spot market that benefit from these price spikes.
Because wind cannot be called on command—there’s usually either quite a lot of wind power or none at all—wind never commands a premium in the market. And because wind farm investors need to know the rate of return on their investment in order to provide the capital for these projects, wind power companies must negotiate long-term contracts to sell their power, usually pegged in some fashion to market rates. But at the end of the day, wind is known as a price taker in electricity markets.
Ultimately, there is no real way to know whether long-term contracts from wind energy providers will end up being above or below market rates. In New England, market rates are increasingly tied to the price of natural gas, which is declining, and which is the primary reason that the price you paid this year for your electricity declined by about 10 percent this year. Unfortunately, natural gas fired power plants cannot guarantee their fuel prices five or 10 years down the road, so they cannot lock in a power sale price. What wind energy does provide is certainty, to say nothing about other environmental benefits, which are not much in vogue today throughout much of Maine.
Understanding electricity markets is complicated. Politics needs to make everything simple. But as Mark Twain once wrote, to every complicated question, there is always a simple answer and it is always wrong.
The author would like to acknowledge the input of Abigail Krich of Boreas Renewables in the preparation of this column.